This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
Orbis’ Stuart Place is riding from Melbourne to the Moon and Back to fund a treatment for the “monster of a disease” that his youngest son was born with. The investment industry is rallying behind him.
It’s the end of the world (as we know it)
Fifteen years ago, Thomas Friedman said that globalisation had finally made the world “flat” and that a golden age of prosperity was upon us. A month ago, that stopped being true.
Love him or loathe him (and many lean towards the latter), Thomas Friedman occasionally hits the nail on the head. In his 2005 book “The World is Flat”, Friedman was one of the first popular writers to describe how globalisation was changing contemporary society. Modern logistics and digital technology had rapidly collapsed the distance between countries, allowing for international trade, migration, and the export of neoliberal market thinking around the world. It appeared to be a phenomenon that could – and would – continue unabated.
Now it’s dead, if BlackRock CEO Larry Fink and Oaktree founder Howard Marks are to be believed.
Writing in BlackRock’s annual letter to shareholders, Fink paints a grim picture of a world where the Russian invasion of Ukraine has “put an end to the globalisation we have experienced over the last three decades.”
“We had already seen connectivity between nations, companies and even people strained by two years of the pandemic,” Fink wrote. “It has left many communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behaviour we are seeing across society today.”
“The invasion has catalysed nations and governments to come together to sever financial and business ties with Russia. United in their steadfast commitment to support the Ukrainian people, they launched an “economic war” against Russia. Governments across the world almost unanimously imposed sanctions, including taking the unprecedented step of barring the Russian central bank from deploying its hard currency reserves.”
All of that will lead to the end of the neoliberal paradigm that has emerged in international relations since the end of 70s – a paradigm where borders haven’t been barriers – and companies and governments will be closely examining their dependencies on other nations.
“This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries. Others – like Mexico, Brazil, the United States, or manufacturing hubs in Southeast Asia – could stand to benefit,” Fink wrote.
“This decoupling will inevitably create challenges for companies, including higher costs and margin pressures. While companies’ and consumers’ balance sheets are strong today, giving them more of a cushion to weather these difficulties, a large-scale reorientation of supply chains will inherently be inflationary.
And in his latest memo – one that’s been overshadowed by Fink’s own writerly efforts – Marks agrees. The negative aspects of globalisation have come to the fore in a world of disrupted shipping and greater belligerence between states (ironically, Friedman believed globalisation would make the world less hostile, writing that there had never been a war between two countries where McDonald’s operated).
“The negatives often become apparent “only when the tide goes out,” as they have recently,” Marks wrote in the memo, titled The Pendulum in International Affairs. “The invasion of Ukraine has shown that Europe’s importation of oil and gas from Russia has left it vulnerable to a hostile, unprincipled nation (worse in this case – to such an individual) at the same time that winding down nuclear power generation has increased the region’s need for imported oil and gas.”
That will likely have consequences for a world that has gotten used to the cheapest and easiest option, and, more recently, the greenest.
“If the pendulum continues to move for a while in the direction I foresee, there will be ramifications for investors,” Marks wrote. “Globalisation has been a boon for worldwide GDP, the nations whose economies it has lifted, and the companies that reduced costs by buying abroad.”
“The swing away will be less favourable in those regards, but it may (a) improve importers’ security, (b) increase the competitiveness of onshore producers and the number of domestic manufacturing jobs, and (c) create investment opportunities in the transition.”
Marks is unsure how long that pendulum will swing away for, but the ultimate result will depend on which force wins: “the need for dependability and security or the desire for cheap sourcing.”
In that case, it might be premature to declare the death of globalisation. After all, given that the desire for cheap sourcing has been winning out for the last 70 years – and the interminable human trend towards optimism – one can only imagine that it won’t be long before the pendulum swings back the other way. The world might not be flat right now, but chances are it will be again.
